Planning to Reach Your Goals
Whether it's a short road trip or a lengthy cross-country tour, you can't get to your destination without a plan. Similarly, planning is the most important step to realizing your financial goals. The following money management strategies can help on how to save money and reach your savings goals.
Start with a plan
The first step is to determine your goals and objectives for the future and write them down. Putting the objectives and strategies for reaching them in writing will strengthen your commitment to saving and also allows for regular reviews and adjustments to reach savings goals if your circumstances change. More importantly, before you start to save money for your financial goals, it is a best practice to build corpus for emergency fund first. It helps you to maintain your current lifestyle for couple of months in case of short term financial needs.
Paying off High Interest Debt first
Before you start saving or invest money, it's crucial to pay off your debt you already have. It can be your credit card debt, student loan or any other personal loan. Being debt free is most important step towards your financial goal.
Many savings goals seem so far in the future, it's natural to put off saving. But there are good reasons to start saving money early. Thanks to the power of compounding interest, time has a dramatic effect on the growth of your savings. In fact, if you start saving in your 20s, you could see your money double several times before you reach retirement! No matter how young or old you are, starting today will bring the best rewards. While starting early is important, it is also crucial to choose the best financial vehicle to park your funds. Often, a high interest rate savings account is a better choice if you don't know the ins and outs of investment accounts.
You might worry that the small amount you are able to save each week or month doesn't make saving worthwhile. But all large amounts are made up of small amounts. More frequent contributions from your living expenses, bi-weekly or weekly, for example will put more of your money to work sooner and accelerate the growth of your savings through the power of compound interest. The chart below illustrates the difference that contributing regularly can make.
See how much you can save*
|Monthly Amount Saved||Total savings after:|
|Year 1||Year 2||Year 3|
|Based on an annual savings rate of 4%.
An Automatic Savings Plan (ASP) can help with this. It automatically sets aside a set amount at regular intervals of your choosing. This amount can be derived from your short term financial goals. It can be a down payment for your home, a retirement account(retirement saving) or any other long-term goals. Most people coordinate their ASP with their payday cycle, so they don't even notice the money is being put aside.
Stick with the plan
Once you have an ASP in place, stay focused on your set goals. Even if your financial situation changes down the road, it makes more sense to adjust the plan to your new circumstances rather than cancel it entirely. To stick to the plan, you may have to change your spending habits, cut down your living expenses(spend less) or be mindful of your personal finance than you have been till now.
Use annual reviews to stay on track
It's important to keep your plan on track. One way is to review your progress annually and consider adjustments that may enhance your plan as your circumstances change over time. As well, you should reassess your plan whenever there are major changes in your life. Some key life changes that may have an effect on your financial situation include:
- significant increases or decreases in household income
- receipt of an inheritance or other lump-sum of money
- the purchase of a new home or other property
The amount targeted for savings could be just one hour of pay each day. If that's too much for you at this time, start even smaller, even putting aside $2,200 JMD with each pay cheque. You'll soon see how easy it is to save automatically.
Have you got a long term or short term goal in mind? Try following these steps. If you need some help working out how much you need to save, goal setting, money management or how you can go about saving it, we are always here to help.
Example is in USD funds.